The effects of minimum wage increase on outsourced workers: evidence from Spain

Abstract

The paper presents an assessment of the distinct wage and spillover effects between outsourced and in-house workers, resulting from a 20% increase in the Spanish statutory minimum wage in 2019. Our empirical approach is based on the standard diff-in-diff estimator applied to matched employer-employee administrative data sourced from social security and tax records. Findings reveal that the minimum wage increase has a positive and significant impact on workers' wages, with a stronger effect observed among outsourced workers compared to in-house workers. We also observe a spillover effect extending up to the median of the wage distribution. Similarly, this effect is more pronounced among outsourced workers compared to in-house workers. Additionally, we provide insights into specific labour market segments, such as migrants and female workers, and discuss potential mechanisms driving the primary effect. In particular, we focus on the likelihood of changing employers and sectors of employment, as well as the probability of transitioning out of sectors providing labour services to other firms.